Wednesday, July 25, 2012

The culture at Microsoft

Update, July 30: It may be too soon to write Microsoft off. Check out this post about Microsoft's plans for the coming year, particularly its new touchscreen tablet computer, Surface.

Vanity Fair has posted its story on the reversals at Microsoft, once the most valuable company in the world (by market capitalization). Now, according to the article, Apple's iPhone brings in more revenue than ALL of Microsoft, and Microsoft's stock value has fallen. It's a remarkable decline, and Kurt Eichenwald does a good job explaining what probably happened.

There were a lot of factors. As Eichenwald puts it:

The story of Microsoft’s lost decade could serve as a business-school case study on the pitfalls of success. For what began as a lean competition machine led by young visionaries of unparalleled talent has mutated into something bloated and bureaucracy-laden, with an internal culture that unintentionally rewards managers who strangle innovative ideas that might threaten the established order of things.

But the factor I'm interested in is the corporate culture. Microsoft's unusual performance evaluation system has been getting some attention, and it seems an obvious culprit:

The system—also referred to as “the performance model,” “the bell curve,” or just “the employee review”—has, with certain variations over the years, worked like this: every unit was forced to declare a certain percentage of employees as top performers, then good performers, then average, then below average, then poor.

“If you were on a team of 10 people, you walked in the first day knowing that, no matter how good everyone was, two people were going to get a great review, seven were going to get mediocre reviews, and one was going to get a terrible review,” said a former software developer. “It leads to employees focusing on competing with each other rather than competing with other companies.”

These rankings had consequences, including bonuses, promotions or, for those at the bottom, no raises and possibly no job. In addition to the obvious morale problems this approach caused, Eichenwald describes two others - people avoided working with high-ranking performers, even if they were highly ranked themselves. And sometimes people worked hard to make sure their colleagues did poorly or did not achieve management goals. Top management apparently understood there was a problem, but tried only one fix (several times) which did not work.

Eichenwald describes other problems with the corporate culture:
* in the early years employees made a lot of money fast, through stock options, and were eager to throw themselves into the work. That culture eventually devolved into one with many layers of managers - it may have appeared at the time to be stabilization but is now felt to have been bureaucratization;
* products were developed very slowly, and senior management required them all to work with Windows. Microsoft had an e-reader under development as far back as 1999, but it was rejected by senior management;
*staff became demoralized as amenities declined; and
* managers forgot about that younger users will use their products in ways they haven't anticipated, and the managers never got on top of trend.

It's a useful lesson for managers here. One is the importance of allowing creativity to flourish. I think there's another about competition. A little can be good, but not to the point where it's poisonous. Are there other lessons here? Let me know what you think.